NATIONAL ASSOCIATION OF STATE UTILITY CONSUMER ADVOCATES

RESOLUTION

Urging That The FERC Employ Price Regulation and/or Other Mitigation Measures Where Effective Wholesale Competition Does Not Exist, And Where Market-Based Pricing Therefore Does Not Produce Just And Reasonable Rates

WHEREAS, A workable wholesale market structure is vital to ensure reasonable prices in electric markets and long-term reliability of electric delivery to retail and wholesale consumers;

WHEREAS, Existing electricity markets face limitations with respect to supply availability, transmission adequacy and effective, broadly accessible demand-response;

WHEREAS, These unique problems create opportunities for anti-competitive behavior and economic inefficiency through strategic withholding of capacity or energy, opportunistic withholding during times of shortage, or deferral of construction or interconnection.

WHEREAS, Market abuses in interstate markets by large interstate utility holding companies led Congress to enact consumer protection standards in the Public Utilities Holding Company Act and Federal Power Act in 1935;

WHEREAS, The extensive consolidation of control over generation by marketers and generation owners may once again lead to a risk of abusive control of the wholesale electric supply market unless enforcement of market protections is dependable and firm;

WHEREAS, The Energy Policy Act of 1992 authorizes FERC, in Section 205 of the FPA, to establish market-based rates for a competitive wholesale power market;

WHEREAS, The distinction between market-based rates and cost-based rates is a matter of means rather than end – both mechanisms are expected to produce prices that reflect the suppliers’ marginal costs plus a reasonable return and to satisfy the just and reasonable requirement of the FPA;

WHEREAS, Prerequisites for effective competition in wholesale markets include (a) a sufficient number of buyers and sellers, (b) transparent prices, (c) reasonable costs and terms of entry, (d) buyers who can control their demand in response to price, and (e) implementation of appropriate transmission policies;

WHEREAS, Congress has, in adopting the Federal Power Act, declared that unjust and unreasonable wholesale electricity rates and charges are unlawful and vested in the Federal Energy Regulatory Commission (FERC) the authority in Section 205 to ensure that wholesale electricity rates and charges are just and reasonable;

WHEREAS, Congress in 1988 adopted the Regulatory Fairness Act that gave the FERC the authority to determine not only that rates are just and reasonable but are also subject to refund;

WHEREAS, The failure of western wholesale markets to function properly has resulted in unreasonable and unstable prices, which have created a state of turmoil, thereby placing unacceptable impacts on consumers and the public;

WHEREAS, The FERC’s use of a hub and spoke analysis is not effective in determining whether a participant is in a position to exercise market power;

WHEREAS, Offerings of market based rates under the FERC’s interpretation of Section 205 of the FPA leave the burden to consumers to prove that markets are dysfunctional and are harming consumers.

WHEREAS, State government officials and others have requested and petitioned the FERC to review the structure and pricing of markets in the western region and New York to determine whether rates in those markets are just and reasonable;

WHEREAS, The FERC has not appropriately exercised its authority to review these markets in totality, instead choosing to evaluate a small time segment of the market;

WHEREAS, The FERC has also not appropriately exercised its authority to correct flaws in wholesale markets where it has found that market-based rates are not just and reasonable;

WHEREAS, NASUCA Resolution 98-12 ("Resolution 98-12) urged Federal and State policymakers to protect the interests of consumers in setting policies to create an effective market structure for competitive utility services;

WHEREAS, Resolution 98-12 warned policymakers that the individual characteristics of utility markets present anti-competitive problems in the transition from regulated monopolies to competitive markets;

WHEREAS, The failure of existing wholesale markets could set a dangerous precedent for regional wholesale markets throughout the Nation;

WHEREAS, Consumers face serious harm if the wholesale power markets result in unjust or unreasonable rates;

THEREFORE BE IT RESOLVED, that NASUCA urges the FERC to use the powers vested in it by Congress and assure just and reasonable rates by ordering cost-based price regulation and/or other appropriate means of mitigation in any wholesale market where rates are not demonstrably and reliably just and reasonable;

BE IT FURTHER RESOLVED, that the FERC should use the powers vested in it by Congress to act to identify revenues secured as a result of the exercise of market power and in violation of the FPA and order that these revenues be refunded to customers;

BE IT FURTHER RESOLVED, that NASUCA urges the FERC to expand its market power analysis beyond the hub and spoke methodology;

BE IT FURTHER RESOLVED, that NASUCA authorizes its Executive Committee to develop specific positions and to take appropriate actions consistent with the terms of this resolution. The Executive Committee shall advise the membership of any proposed action prior to taking action if possible. In any event the Executive Committee shall notify the membership of any action pursuant to this resolution.

Approved by NASUCA: Submitted by:

Santa Fe, New Mexico NASUCA Electricity Committee
Place

June 19, 2001